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Justin Bierschwale Bierschwale Appraisals PO Box 154 517 College Street Junction, TX 76849 Ph (325) 446-3052 [email protected] . Terry Argotsinger Stalcup Ag Service, Inc. P O Box 67 910 Flindt Drive Storm Lake, IA 50588 712-732-6462 [email protected]

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negotiating wind park easements and analyzing comparable sales presented by
Justin Bierschwale

Bierschwale Appraisals

PO Box 154

517 College Street

Junction, TX 76849

Ph (325) 446-3052

[email protected]

Terry Argotsinger

Stalcup Ag Service, Inc.

P O Box 67

910 Flindt Drive

Storm Lake, IA 50588

712-732-6462

[email protected]

Negotiating Wind Park Easements andAnalyzing Comparable Salespresented by
locating wind parks
Locating Wind Parks
  • Power Grid
  • Wind Velocity
  • State and Federal Mandates (cap and trade)
  • Tax incentives
  • Power demand
  • Will of the people
slide5

Mutual desire to

make it compatible for everyone

cost of construction 1 5 mwh turbine
Cost of Construction1.5 MWh turbine
  • Blades $300,000
  • Generator $1,250,000
  • Transportation $225,000
  • Tower $330,000
  • Materials $400,000
  • Labor $400,000
  • Engineering, Dev., etc $80,000
  • $3,000,000 / 1.5 Mwh = $2,000/Kwh RCN
  • Deprec., O&M, Land rent, RE Tax – $60,000
  • Debt Service ?
income stream
Income Stream
  • Electricity - $35 to $100 per Mwh at the hub
  • Carbon Credits - $5 to $25 per mmt
  • PTC/ITC/Direct payments - $.021 per Kwh
  • Depreciation – 5 year equipment
actual production 1 5 mw turbine
Actual Production(1.5 MW Turbine)
  • 4,000,000 Kwh x $.055/Kwh = $220,000
  • 4,000,000 Kwh x $.021/Kwh PTC = $84,000
  • 1.5 Mwh x 2,000 mmt CO2/Mwh x $15/mmt = $45,000

SO2, NOx – EPA clearing house for pollution credits

(Meets Electricity needs for 300 people/year)

the queue
The Queue
  • Federal Energy Regulatory Commission - FERC
  • Independent Transmission System Operators - ISOhttp://www.midwestmarket.org/page/Total+Wind+Generation
  • $200,000 to $300,000 for permits
  • Application
  • Feasibility Study
  • System Impact Study
  • Facilities Study
  • 459 to 884 days
method of negotiation
Method of Negotiation
  • Get legal advice
  • Individually
  • As a group
  • Trustee, LLC – Combine wind rights into one package if rights can be separated under state code
  • Option, Lease, Easement
  • Privacy clause – Agreement and Memorandum
key terms of agreement
Key Terms of Agreement
  • 3 phases Development – Construction - Operations
  • Rates
  • Site selection
  • Insurance
  • Re-powering
  • Decommissioning
  • Most Favored Nation
development phase
Development Phase
  • 3 to 5 years
  • State mandates with limits – 7 years
  • http://www.dsireusa.org/
  • $3 to $40 per acre per year
construction phase
Construction Phase
  • Usually less than one year
  • One time payment
  • Crop Damages
  • Compaction
  • Access
  • Laydown areas
  • Crane paths
operations phase
Operations Phase
  • 30 to 90 years
  • Fixed Payments - $2,500 - $6,000 per MW
  • CPI-U minimum 2%
  • Royalty – individual tower 3,4,5 or 6%
  • Royalty – prorated
  • Fixed plus royalty
  • Per acre plus royalty – 40/60
  • Renewable energy credits
  • Carbon credits
  • Roads, cables, buildings, substation
site selection
Site Selection
  • Proposed plat
  • Final plat
  • Landowner approval
  • The larger the turbine the fewer per farm
  • 1.1 fall down distance – state code ?
  • Setbacks from roads, dwellings
insurance
Insurance
  • State code minimums
  • $2,000,000 to $10,000,000
  • Adjust to inflation
slide18

Decommissioning

5 feet

400 cu yds

Performance bond for 1.5 x cost of removal

180 days

most favored nation
Most Favored Nation
  • Same terms for all agreements
  • Private negotiation - addendum
developers aren t stupid tired of waiting for expansion
DEVELOPERS AREN’T STUPIDTIRED OF WAITING FOR EXPANSION

FP&L PRIVATELY BUILT TRANSMISSION LINE

what the transmission companies are saying
WHAT THE TRANSMISSION COMPANIES ARE SAYING
  • $4.93 BILLION IN EXPANSION PROJECTS
  • 2400 MILES OF NEW TRANSMISSION
  • POTENTIAL FOR 18.5 GIGAWATTS IN NEW WIND POWER PROJECTS
  • AEP & DUKE ENERGY – 240 MILES OF 765 KV TRANSMISSION LINES, EST. $1 BILLION
  • COMING ONLINE WITHIN 8 YEARS
onsite data
ONSITE DATA
  • Anemometers
  • Research Facilities
  • Terrain
  • Neighborhood
  • Existing Turbines
  • Data, Data, Data
regulations
Regulations
  • Siting
  • Visual & Noise
  • Wildlife Impact
  • Development Stages
  • County Zoning?
  • Safety?
  • Synchronization with Power Grid
  • Property Tax
who all gets involved
Who All Gets Involved
  • Wind Developer
  • State Government
  • Local Government
  • Federal Agencies
  • Community Groups & Activists
  • Environmental Organizations & Activists
  • General Public
back to basics 6 functions of 1 00

Future Worth of $1.00

  • Future Worth of $1.00 Per Period
  • Sinking Fund Factor
  • Present Worth of $1.00
  • Present Worth of $1.00 Per Period
  • Annuity Worth of $1.00 TODAY

BACK TO BASICS--6 FUNCTIONS OF $1.00

internal rate of return
INTERNAL RATE OF RETURN
  • RATE THAT SETS THE VALUE OF FUTURE CASH FLOWS EQUAL TO THE CURRENT VALUE

IRR???

10.4%

sale details
SALE DETAILS
  • 640 Acres
  • Sale Price $1,581,257
  • Land Contributory Value: $2,000/Acre
  • Residual Wind Lease Contribution: $301,257
  • Number of Turbines: 5
  • Lease Period at time of sale: Development
calculate the irr
CALCULATE THE IRR

IRR = 17.36%

subject details
SUBJECT DETAILS
  • 320 ACRES
  • ROYALTY PAYMENTS – SAME AS SALE
  • TERMS – SAME AS SALE
  • NUMBER OF TURBINES – 2
  • STAGE ON DATE OF APPRAISAL
    • DEVELOPMENT
apply it
APPLY IT

17% IRR

NPV = $131,670

320 ACRES X $2,500/ACRE = $800,000

+ CV OF WIND LEASE: $131,000

TOTAL VALUE = $931,000

what ifs justin s fuzzy logic
What Ifs: Justin’s Fuzzy Logic
  • What if the Subject already had turbines producing and had 5 years of payment history?
  • What if the Subject sat right next to an expanding wind farm but did not yet have a lease in place?
things to consider
Things to Consider
  • Make certain you have measured value as it contributes to the whole package, i.e. avoid flat out summation.
    • Extract Rates as they relate to contributory value, not as they stand separate and apart from the land.
  • Extract and Apply in the exact same way.
    • If you include bonus payments in extraction, include them in application, etc.
  • Step Away from the ledge at the end of the day and think through your conclusions. Are they logical?
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